FORM 10-Q

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

         [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 1997

                                       OR

         [ ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934


                         Commission File Number: 0-13157


                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP
             (Exact name of registrant as specified in its charter)

                      California                         33-0023868
            (State or other jurisdiction of           (I.R.S. Employer
            incorporation or organization)           Identification No.)

         400 South El Camino Real, Suite 1100
                 San Mateo, California                     94402-1708
       (Address of principal executive offices)            (Zip Code)

                                                  (415) 343-9300
                         (Registrant's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                    Yes X No

         Total number of units outstanding as of March 31, 1997: 37,473





                                  Page 1 of 12
<PAGE>


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                                 Balance Sheets
                    (in thousands, except units outstanding)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                            March 31,                 December 31,


<S>                                                      <C>                         <C>            
                                                              1997                        1996
Assets
Investments in real estate:
   Rental property held for sale                         $          800              $          800
   Land held for sale                                             3,369                       3,367
                                                         --------------              --------------
    Total real estate investments                                 4,169                       4,167

Cash and cash equivalents                                           988                       1,061
Deferred financing costs and other fees,
   net of accumulated amortization of $19
   and $83 at March 31, 1997 and
   December 31, 1996, respectively                                   12                          13
Other assets                                                          3                           3
                                                         --------------               -------------

           Total assets                                  $        5,172              $        5,244
                                                         ==============              ==============

Liabilities and Partners' Equity (Deficit)
Liabilities:
    Accounts payable and accrued expenses                $           35              $           43
    Other liabilities                                                 9                           9
                                                         --------------              --------------

       Total liabilities                                             44                          52
                                                         --------------              --------------

Partners' equity (deficit):
    General Partner                                                (269)                       (268)
    Limited Partners, 37,473 limited
       partnership units outstanding at March
       31, 1997 and December 31, 1996                             5,397                       5,460
                                                         --------------              --------------

           Total partners' equity                                 5,128                       5,192
                                                         --------------              --------------

              Total liabilities and partners' equity     $        5,172              $        5,244
                                                         ==============              ==============

                 See accompanying notes to financialstatements.
</TABLE>


                                  Page 2 of 12
<PAGE>


                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                            Statements of Operations
          (in thousands, except units outstanding and per unit amounts)
                                   (Unaudited)


                                                            Three months ended
                                                                March 31,
                                                       1997                1996
                                                  --------------       --------
Revenues:
<TABLE>
<CAPTION>
<S>                                                 <C>                 <C>        
     Rental income                                  $       35          $        50
     Interest and other income                              13                    3
     Gain on guarantee settlement                          ---                  117
                                                    ------------        -----------

     Total revenues                                         48                  170
                                                    ------------        -----------

Expenses:
     Operating                                              22                   20
     Expenses associated with undeveloped land               9                   35
     Interest                                              ---                   21
     Depreciation and amortization                           2                   16
     General and administrative                             79                  110
                                                    ------------        -----------

     Total expenses                                        112                  202
                                                    ------------        -----------

Net loss                                                   (64)                (32)
                                                    -----------         ------------

Net loss per limited partnership unit               $     (1.68)        $     (0.83)
                                                    ============        ============

Weighted average  number of limited
  partnership  units  outstanding  during
     the period used to compute net loss
     per limited partnership unit                       37,473               37,489
                                                    ==========          ===========
</TABLE>









                 See accompanying notes to financial statements.




                                  Page 3 of 12
<PAGE>


                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                    Statements of Partners' Equity (Deficit)
               For the three months ended March 31, 1997 and 1996
                                 (in thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>


                                       General               Limited
                                       Partner               Partners             Total

<S>                                 <C>                   <C>                 <C>          

Balance at December 31, 1996        $        (268)        $      5,460        $       5,192

Net loss                                       (1)                 (63)                 (64)
                                    --------------        -------------       --------------

Balance at March 31, 1997           $        (269)        $      5,397        $       5,128
                                    =============         ============        =============



Balance at December 31, 1995        $        (264)        $      5,632        $       5,368

Net loss                                       (1)                 (31)                 (32)
                                    -------------         ------------        -------------

Balance at March 31, 1996           $        (265)        $      5,601        $       5,336
                                    =============         ============        =============

</TABLE>












                 See accompanying notes to financialstatements.


                                  Page 4 of 12
<PAGE>


                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                     Statements of Cash Flows (in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                            Three months ended
                                                                                 March 31,
                                                                           1997               1996
Cash flows from operating activities:
<S>                                                               <C>                 <C>           
  Net loss                                                        $        (64)       $         (32)
Adjustments to reconcile net loss to net cash
  used for operating activities:
    Gain on guarantee settlement                                           ---                (117)
    Depreciation and amortization                                            2                  16
    Amortization of loan fees, included in interest expense                 --                   5
Changes in certain assets and liabilities:
    Accounts receivable                                                    ---                  (1)
    Deferred financing costs and other fees                                 (1)                ---
    Accounts payable and accrued expenses                                   (8)                  9
    Payment of guarantee settlement                                        ---                (183)
                                                                  ------------         -----------

       Net cash used for operating activities                              (71)               (303)
                                                                  ------------         -----------

Cash flows from investing activities:
    Additions to real estate investments                                    (2)                 (5)
                                                                  ------------         -----------

       Net cash used for investing activities                               (2)                 (5)
                                                                  -------------        ------------

Cash flows from financing activities:
    Borrowings on notes payable                                            ---                  60
                                                                  ------------         -----------

       Net cash provided by financing activities                           ---                  60
                                                                  ------------         -----------

Net decrease in cash and cash equivalents                                  (73)               (248)

Cash and cash equivalents at beginning of period                         1,061                 459
                                                                  ------------         -----------

Cash and cash equivalents at end of period                        $        988         $       211
                                                                  ============         ===========

Supplemental disclosure of cash flow information:
  Cash paid for interest                                          $        ---         $        11
                                                                  ============         ===========

</TABLE>

                 See accompanying notes to financialstatements.



                                  Page 5 of 12
<PAGE>



                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP
                          Notes to Financial Statements

                                 March 31, 1997
                                   (Unaudited)

Note 1.           THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES

In the opinion of Rancon Financial  Corporation  (RFC) and Daniel Lee Stephenson
(the  Sponsors) and  Glenborough  Inland Realty  Corporation,  the  accompanying
unaudited  financial  statements  contain all  adjustments  (consisting  of only
normal  accruals)  necessary to present fairly the financial  position of Rancon
Realty Fund III, A California Limited  Partnership (the Partnership) as of March
31, 1997 and  December  31,  1996,  and the related  statements  of  operations,
changes in partners'  equity and cash flows for the three months ended March 31,
1997 and 1996.

Allocations of profits,  losses and cash  distributions from operations and cash
distributions  from sales or  refinancing  are made pursuant to the terms of the
Partnership  Agreement which generally allocates 98% to the limited partners and
2% to the general partners.

On February 12, 1997, the General Partners adopted a plan of orderly liquidation
of the  Partnership's  assets.  Accordingly,  all investments in real estate are
currently  being  marketed for sale, are classified as property held for sale on
the accompanying  balance sheets and are recorded at the estimated fair value of
the respective  asset. The carrying value of the investments in real estate does
not purport to represent the ultimate sales price the  Partnership  will realize
from the  disposition  of these  assets  nor are the  amounts  reflected  in the
accompanying  financial  statements intended to represent the ultimate amount to
be distributed to partners.

In December,  1994, RFC entered into an agreement with Glenborough Inland Realty
Corporation  (Glenborough)  whereby  RFC sold to  Glenborough  the  contract  to
perform  the  rights  and  responsibilities   under  RFC's  agreement  with  the
Partnership   and  other   related   Partnerships   (collectively,   the  Rancon
Partnerships)  to perform or contract  on the  Partnership's  behalf  financial,
accounting,  data processing,  marketing,  legal, investor relations,  asset and
development  management and consulting services for the Partnership for a period
of ten years or until the liquidation of the Partnership, whichever comes first.
According to the contract, the Partnership will pay Glenborough for its services
as follows:  (i) a specified asset  administration  fee,  currently $239,000 per
year,  which is fixed for five years subject to reduction in the year  following
the sale of assets;  (ii) sales fees of 2% for  improved  properties  and 4% for
land;  (iii) a  refinancing  fee of 1% and (iv) a management  fee of 5% of gross
rental  receipts.  As part of this agreement,  Glenborough  will perform certain
responsibilities  for the General  Partner of the Rancon  Partnerships.  RFC has
agreed to cooperate with  Glenborough,  should  Glenborough  attempt to obtain a
majority vote of the limited  partners to  substitute  itself as the Sponsor for
the  Rancon  Partnerships.   This  agreement  was  effective  January  1,  1995.
Glenborough is not an affiliate of RFC.

Basis of Accounting - The accompanying  financial  statements have been prepared
on the  accrual  basis of  accounting  in  accordance  with  generally  accepted
accounting  principles  under the presumption that the Partnership will continue
as a going  concern.  As discussed  above,  on February  12,  1997,  the General


                                  Page 6 of 12
<PAGE>


                            RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP
                          Notes to Financial Statements

                                 March 31, 1997
                                   (Unaudited)


Partners  adopted a plan of orderly  liquidation  of the  Partnership's  assets.
However,  the  liquidation  proceeds  and the timing  thereof are not  currently
estimable.  Once  such  liquidation  proceeds  and the  cost and  timing  of the
liquidation become determinable,  the Partnership will commence reporting on the
liquidation  basis of accounting  whereby  remaining assets will be presented at
the estimated realizable value and remaining liabilities,  including a provision
for the  estimated  costs  of the  plan,  will  be  presented  at the  estimated
settlement  value.  Accordingly,  the accompanying  financial  statements do not
provide  for any  adjustments  relating  to the  aforementioned  plan of orderly
liquidation.

Reclassification  - Certain 1996 balances have been reclassified to conform
with the current period presentation.

Note 2.           REFERENCE TO 1996 AUDITED FINANCIAL STATEMENTS
                  ----------------------------------------------

These  unaudited  financial  statements  should be read in conjunction  with the
Notes  to  Financial  Statements  included  in the  December  31,  1996  audited
financial statements.

Note  3.          LAND HELD FOR SALE

At March 31, 1997,  there is  approximately  one acre of land under contract for
sale under an agreement  of purchase and sale.  The sale is expected to close in
May  1997.  The  cash  proceeds  will  be  added  to the  cash  reserves  of the
Partnership.

Note 4.           ACCRUED GUARANTEE SETTLEMENT COSTS

The  Partnership  agreed to indemnify the Sponsors for any amounts paid under an
agreement  executed  by the  Sponsors  in  1992  guaranteeing  the  payment  and
performance  of a portion  of a  promissory  note to  Imperial  Thrift  and Loan
(Imperial)  which was assumed by the buyer  (Sumarco)  when Sumarco  purchased a
restaurant  from the  Partnership  on April 30, 1992.  The  guarantee of up to a
maximum of $600,000 was a condition of such assumption.  Sumarco defaulted under
the terms of the note.  Imperial filed a foreclosure  action against Sumarco and
named the Sponsors as defendants  for purposes of enforcing the  guarantee.  The
Partnership  felt  there  were  strong  points in its  favor,  but  recorded  an
estimated loss on such guarantee of $300,000 at September 30, 1993.

In order to avoid the uncertainties and expense of further litigation,  Imperial
and the Sponsors  entered into a Settlement  Agreement and Release on January 2,
1996.  The Agreeing  Parties  (Imperial and the Sponsors)  acknowledge  that the
settlement  between  them  is  a  compromise   resolution  of  disputed  claims.
Accordingly,  Imperial filed a Request for Dismissal of Case No. RCV 07394,  and
the Sponsors  complied with their  payment of $182,500 on January 16, 1996.  The
Partnership reimbursed the Sponsors under its indemnity agreement and recorded a


                                  Page 7 of 12
<PAGE>


                          RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP
                          Notes to Financial Statements

                                 March 31, 1997
                                   (Unaudited)


$117,500 gain for the balance of the accrued  liability that was not incurred by
the Partnership.  Sumarco is not party to this full and final settlement, and is
in no way to be benefited or released by it.




                                  Page 8 of 12
<PAGE>


     Item 2.  Management's  Discussion and Analysis of Financial  Conditions and
              Results of Operations.

LIQUIDITY AND CAPITAL RESOURCES

In December,  1986,  Rancon Realty Fund III (the  Partnership)  completed  final
funding with 37,500 limited  partnership  units (Units) issued.  As of March 31,
1997, the Partnership had cash of $988,000.  The remainder of the  Partnership's
assets  consist  primarily  of its  investments  in real estate,  which  totaled
$4,169,000 as of March 31, 1997.

On February 12, 1997, the General Partners adopted a plan of orderly liquidation
of the  Partnership's  assets.  Accordingly,  all investments in real estate are
currently  being  marketed for sale, are classified as property held for sale on
the accompanying  balance sheets and are recorded at the estimated fair value of
the respective  asset. The carrying value of the investments in real estate does
not purport to represent the ultimate sales price the  Partnership  will realize
from the  disposition  of these  assets  nor are the  amounts  reflected  in the
accompanying  financial  statements intended to represent the ultimate amount to
be distributed to partners.

The  Partnership's  primary  source of funds include  property  sales,  property
operations,  and interest  income earned on cash  balances.  Funds from property
operations  consist of cash generated from rental activities  reduced by related
rental  expenses  and costs  associated  with  acquiring  tenants.  The net cash
generated by property  operations as well as the Partnership's cash reserves and
interest  income  thereon  have  been  used  to  pay  expenses  related  to  the
Partnership's administrative operations.

The  Partnership's  assets are located within the Inland Empire, a sub-market of
Southern California, and have been directly affected by the economic weakness of
the region.  Management believes,  however, that the market has flattened and is
no longer  falling in terms of sales  prices.  While  prices have not  increased
significantly,  the  Southern  California  real  estate  market  appears  to  be
improving.

As of March 31, 1997, the Partnership  owns a 17,750 square foot office building
(Civic Center II) and approximately 16.7 acres of land.

Management  believes that the  Partnership's  available  cash together with cash
generated  from  operations  prior to sale of the  real  estate  assets  and net
proceeds upon sales will be sufficient to finance the cash  requirements  of the
Partnership until an orderly liquidation is completed.


RESULTS OF OPERATIONS

Rental income decreased during the three months ended March 31, 1997 by $15,000,
or 30%,  compared to the same period in 1996, due to a reduction in occupancy at
Civic  Center  II from  86% at March  31,  1996 to 58% at March  31,  1997.  The
reduction in occupancy  occurred when a tenant vacated a 5,074 square foot space
upon their lease expiration in 1996.

                                 Page 9 of 12
<PAGE>

Interest and other income  increased  by $10,000,  or 333%,  in the three months
ended  March  31,  1997  compared  to the three  months  ended  March 31,  1996,
primarily as a result of a higher  invested cash balance from the June 1996 sale
of 33 acres of unimproved land.

During  the  three  months  ended  March  31,  1997  expenses   associated  with
undeveloped land decreased by $26,000, or 74%, when compared to the three months
ended March 31, 1996, as a result of lower property tax expenses due to the sale
of land in 1996,  prior year property tax refunds  recorded in 1997, and reduced
property taxes  resulting from  successful  property tax appeals on certain land
parcels, net of tax appeal fees.

Interest expense  decreased by $21,000,  or 100%,  during the three months ended
March 31, 1997  compared  to the same  period in 1996,  due to a pay-off in June
1996 of the only note payable previously outstanding.

Due to the cessation of depreciation on the rental property held for sale, Civic
Center II,  depreciation and amortization  decreased by $14,000,  or 88%, during
the three months ended March 31, 1997  compared to the same period in 1996.  The
$2,000 of expense  during the three  months  ended  March 31,  1997,  represents
amortization of lease commissions and depreciation of furniture and equipment.

General and administrative expense decreased in the three months ended March 31,
1997 by $31,000,  or 28%,  compared  to the same period in 1996,  as a result of
lower legal fees due to the 1996  settlement  and a lower asset  management  fee
attributable to the sale of land in 1996.



                                 Page 10 of 12
<PAGE>


Part II. OTHER INFORMATION


Item 1.  Legal Proceedings

                  Incorporated  by reference to Note 4 of the Notes to Financial
                  Statements included herein.

Item 2.  Changes in Securities

                  Not applicable.

Item 3.  Defaults Upon Senior Securities

                  Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders

                  None.

Item 5.  Other Information

                  None.

Item 6.  Exhibits and Reports on Form 8-K

                  (a) Exhibits:

                  #27 - Financial Data Schedule

                  (b) Reports on Form 8-K:

                  None.




                                 Page 11 of 12
<PAGE>



                                   SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                         RANCON REALTY FUND III,
                         A CALIFORNIA LIMITED PARTNERSHIP
                         (Registrant)



Date: May 15, 1997       By:/s/Daniel L. Stephenson
                              Daniel L. Stephenson
                              General Partner and Director, President, Chief
                              Executive Officer and Chief Financial Officer of
                              Rancon Financial Corporation, General Partner of
                              Rancon Realty Fund III, a California Limited
                              Partnership

                                 Page 12 of 12